The Great American Crapshoot

Well, they passed it. Wall Street bailout, Main Street Rescue, or whatever you want to call it, is now law. Now we will roll the dice 700 times, a billion on the table each time. Will we roll all sevens or hit a few snake-eyes? Congress is not worried. After all, it's our money they are betting.

Dear Politicians (especially Presidential Candidates): 

We understand how Fannie and Freddie and other banks got into trouble making bad loans. We even understand how these bad loans sort of lost their identity when they were bundled into questionable securities. We know that most of you ignored repeated warnings that began years ago about an impending problem. We are, however, a little ashamed to admit that we still do not understand how it reached a financial tsunami in a matter of days and how it is going to wash away not only Wall Street, but also Main Street before October is over. 

How did you arrive at $700 billion; where is it going; how is it going to fix the problem? Is this $700 billion in cash that went missing or is it market value that disappeared from balance sheets? Please explain.

P. S. We are from the real Main Street, not the folks who took mortgages beyond our means, but the ones who drive the economic engine of this country. Yes, we know that we create most of the jobs-not you, not Wall Street, not the President.

More of us than you think have heard your explanations. They are unclear at best, insulting at worst. You are broadcasting to the world that we are on the precipice of a great depression. That seems irresponsible to us and is sure to rattle the very markets you claim to want to soothe. We read newspapers and we listen to radio and television. We research writings from people we respect. We listened with surprised anguish, disappointment and confusion as our capitalist heroes extolled the necessity of government putting its heavy, sticky hand into the free market system without mentioning that government bungling is the primary reason we are in crisis mode. Yes, we know that, too. We know who ignored the warnings; who pushed social agendas that defied economic reality; who took the most money. We are still waiting for just one of you to stand up and say, "I am sorry. I was wrong. I resign." After refusing to even recognize that a problem existed, Frank, Dodd and Obama and others like them insult us all by pretending to know how to solve it.

Yes, we know what happened. Now we want to know why this crisis is going to engulf Main Street and how $700 billion is going to fix it. We have heard great minds and successful capitalists voice their support for this, but they do not explain it. We need to understand it. America needs to understand it before the plan has a chance for success. Our minds are open. Explain. It may not be too late.

One congressman simply changed his vote from no to yes because Obama told him it was "for the good of the country".  He said he was deeply impressed by that. Uh-huh. Another lawmaker said that although his letters and calls were running about a hundred-to-one against the bill, he decided to vote for it because constituents told him they could not borrow money to make payroll this week. Uh-huh.  One told of many constituents who could not sell used cars because of the credit crunch. Uh-huh.  Insulting.

My wife is starting to worry, and I am too, because I find myself repeating the same word as I talk to my television.  Why? Why? Why?  If you could make payroll last week, why can't you make it this week?  And why do you have to borrow money to make payroll? I worked for a company once that could not make Friday's payroll. The bank would not help. There was no international liquidity crisis; we were just broke and thus a poor credit risk. We were forced into bankruptcy within a week. When you can't pay employees on payday, the ship is sinking.

We don't want to sound insensitive, because a lot of us have been there, done that and lost jobs and businesses because of cash shortages. We understand the dangers of illiquidity.  Government, however, does not come to our rescue when we ignore good business practices or even when, in spite of our best efforts, markets turn against us or a good idea doesn't work out. As for used car financing, that has been difficult for more than a decade. Let's see, do you want zero percent on a new car and payments of $400 per month or 9% on a clunker and payments of $500? Tough decision.

Then there is this: "the markets have spoken". Financial Planning 101 tells us to pay little attention to short term market fluctuations. How many have noticed that markets "plunge" one day for the very same reason that they "rise" the next day? They eventually get it right, but it can take months, even years. Should we be making a 700 billion dollar bet on trades that are often driven by rumors and perception rather than facts? On that subject, is it wise for you to shout fire in a crowded theater? Aren't "the markets" the same folks who designed, bought and sold the very investments that exacerbated this problem?

Some of us borrowed money in the seventies at 21%, so we understand wild fluctuations in the economy and in the markets, but we do not understand this bill. Most of us can still borrow money at our banks. When will the tsunami strike Main Street and why will well-run banks on Main Street lose the liquidity they have now and stop making good loans?  

By the way, we also know about the business cycle, something you do not seem to understand. Has it been repealed? Can governments, even Presidents, actually control the inevitability of occasional recessions? We see the economy and government as rivers with dams. Occasionally, we have to let a little water through the locks; sometimes we can divert the course, but Mother Nature will never allow us complete control. Great American ingenuity has always found ways to steer through troubled waters when government stays of the way. Sure, we need dams to keep recessions from spiraling into depressions, but why are we so fearful of something that has happened throughout history? Don't recessions actually serve legitimate purposes (such as punishing the greedy)?

Can your shouting and posturing become a self-fulfilling prophecy?  A professional who cannot explain a problem to a non-professional does not understand the problem. And the people in charge of fixing this can't explain it. Instead, they'll just keep rolling those bones and betting our money.

Jim H. Ainsworth-former CPA, CFP, CLU, Registered Investment Advisor, Licensed Securities Principal, was twice named one of the most influential accountants in America. He welcomes comments at
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